April 18, 2008
See What Happens When You Brag?
GOOG reported “surprisingly” good earnings and the stock flew over $525 after-hours. You’ll recall that I was looking forward to $400.
Now it’s true that trailing the stop via the ABC Method would have had you out before this terrible whammy, but I don’t think all my subscribers follow the letter of the “law.”
Cat: | Time: 7:42 pm (utc+8)
April 18th, 2008 at 9:09 pm
I’m using options more and more for hedging stock positions. I’ve been burned by gap moves blowing past my stops too many times.
April 18th, 2008 at 9:23 pm
steve: Yes, a surprising number of subscribers use options for the Box ideas, not to hedge but to take the trades.
April 19th, 2008 at 6:30 am
wondering how to use box ideas to trade options since the time-frame information is not provided….
mind sharing more detail about it? =)
April 19th, 2008 at 6:46 am
Landola: I know nothing about options. It would be nice to have a number for how long a position is held, on average, but I haven’t calculated it.
April 19th, 2008 at 8:48 am
Landola: i’m new to maoxian but not trading and i had similar q’s about applying ‘box’ set-ups to options.
take some time to research past trades. access historical charts and take note of the entry dates for numerous ‘box’ trades from several months. gauge the time frame for significant price movement - not necessarilly all the way to target #2. my opinion - options are very applicable to the box. of course, have a plan(for profits & losses), know your risk/reward, use a mental stop if you watch the markets or a contingent stop based on the price action of the underlying stock. i only go long options that are very slightly out of the money or slightly in the money. i’m looking for the intrinsic value to appreciate on a 1 to 1 ratio with the movement of the underlying stock. i use this as a basis for anticipating my reward/profits. of course i’m always hoping for a spike in volatility to take my option premiums to obscene levels. my plan does not require waiting to target 1 if my option has appreciated considerably. i am long cvs with may 40 calls. they have appreciated as much as 34% without the stock reaching target 1(41.79). i am not a teacher & i don’t give advice, my apologies should my comments be confusing or too simplistic.
April 19th, 2008 at 8:52 am
benjamin: Thanks for your insight. Do you risk an equal dollar amount on each option trade? Do you wait for the stock to “trigger” before putting on the option trade? (I’m interested in learning too :-) )
April 20th, 2008 at 3:41 am
Maoxian: i have started with a very small amount of risk capital with the idea of executing 3 trades roughly of equal $$. should i grow my account to higher levels i will certainly manage risk in a more appropriate manner. yes, i wait for your trade triggers. also, i look for an uptick in volume corresponding with the reversal candle and/or the penetration of the 20 ema that suspiciously is lurking above entry price(on your longs). there is added confidence in your trade set-ups when i see a series of higher swing lows in the recent past(0 to 120 days) as well as tech indicators screaming oversold - i.e. stochastics(again for longs). i hope you continue providing counter trend set-ups as i find these to be potential huge gainers. example….a stock/index/sector has an established downtrend and then a stock shows up in the box as a long play. this scenario should make the call options fairly cheap(low volatility) with the potential for huge gains when the stock price reverses and the rest of the trading world suddenly wants calls that i already own :-))
missed the counter trend trade with spls on 4/16 as i had other obligations that day. upon triggering i could have bought may 22.50 calls for $75 and on friday closed them out for $110(traded as high as $115) for a 3 day gain of 46%. i’ll be watching spls on monday for another opportunity as well as nst & tlt. i’m especially salvitating(new word??) for the potential with tlt because when that etf decides to move it often hauls ass (new trading terminology) with gap moves. wish it was monday morning already.
April 20th, 2008 at 11:59 am
benjamin: Thanks for your further insight… Don’t get too excited since strong emotions are the enemy of good trading. :)
April 21st, 2008 at 9:59 pm
I’ll hearken back to my original post. Options are perfect for *truly* limiting risk. If you buy a call for a net debit of $100 and that’s the max risk for you account, then that’s the most you’ll lose, period. If you buy a stock and place a stop such that you lose $100 (your max risk once again) if it’s hit you’re theoretically covered. *Except* for gap moves; those are the killers where you can lose more than your max risk.
Options can ameliorate this situation. Unfortunately, options trading is a whole discipline unto itself with many variables to consider that can bite you (i.e. the “greeks”). It’s much to consider and you should really read up on the subject before trading this way.
April 21st, 2008 at 10:24 pm
steve: Yes, I figure if you plan to lose $250, say, if you’re wrong, then it might be OK to go the options route, but I’m just worried that you can be “right” and still get killed by the “greeks,” as you say. All I know is that quite a few of my dozen subscribers exclusively use options for the Ideas.
April 21st, 2008 at 11:47 pm
my ears are ringing……when it comes to options i embrace the methodology of ‘KISS’ even though that may seem at odds with the complexities of this derivative. If not for my newbie subscriber status it is highly likely i would still be in the PDE & SWN trades from march and maybe CF from april. May options on trigger day respectively were $125, $490 & $1000. on 4/18 they traded at $550, $1050 & $4,300. got to love those parabolic-like charts. of course i would have scaled out to a degree but letting winning trades run is a must. I find the leverage, minimal required capital and ability to capture large gains a bit motivational :-)
April 22nd, 2008 at 8:06 am
benjamin: Trailing the stop in PDE, SWN, and CF still captured some decent gains from a risk/reward perspective, though of course I wish we had gotten more. :-)